U.S. savings bonds are safe long-term investments that pay a modest interest rate, compared to riskier investment vehicles. Because of these features, gifts of savings bonds to children have been popular for several decades. Whether you can transfer ownership of your bonds to your godchild depends upon the type of bond.
EE vs. I Bonds
The U.S. government issues two types of bonds: Series EE Patriot bonds and I bonds. Series EE bonds have a fixed rate of return; the rate is set each May and November for bonds issued in the following six months. I bonds are similar, but also are indexed for inflation. You can transfer ownership of a Series EE bond to your godchild as long as the bond is not within one month of final maturity. I bonds cannot be transferred as long as the owner is alive.
How to Transfer
To transfer paper bonds, fill out form PD F 4000, take it to a bank official to be certified, and mail it with the bonds. Some bonds held online in a Treasury Direct account may be transferred directly within Treasury Direct, but your godchild will need an account to receive the transfer. In some cases, you may need to fill out form PDF5511 to transfer bonds in Treasury Direct. Treasury Direct will alert you to this when you try to make the transfer.
If you transfer ownership of the bond, you are responsible for reporting and paying taxes on the interest earned while you owned the bond. Your godchild will be responsible for the taxes on interest earned while she is owner. U.S. savings bonds are exempt from state and local taxes, thus owners are liable only for federal taxes.
You also may consider making your godchild a co-owner of the bond with you. You can do this with either Series EE or I bonds. Adding a co-owner also avoids the tax-reporting issue. If one owner dies, the co-owner immediately becomes sole owner. For paper bonds, a co-owner has full rights to redeem the bond without consent of the other. For bonds bought online, the primary owner must authorize the secondary owner to conduct transactions. You add a co-owner by going through the same procedure as you would to transfer the bond.
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